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TMI Blog2009 (11) TMI 542X X X X Extracts X X X X X X X X Extracts X X X X ..... For the Respondent: None for the respondent. Deepak Gupta, J. This appeal was admitted on the following substantial questions of law: "1.Whether the ITAT was right in law in holding that 'Freight Subsidy' received from the Govt. by the assessee is allowed to be included as profits derived from the industrial undertaking and eligible for deduction under Section 80-1A of the Income Tax Act, 1961, when it has been clearly laid down by the Supreme Court in its decision in the case of CIT vs. Cambay Electric supply Industrial Co. Ltd., 113 ITR 84 that the words "derived from" referred to in the section 80-1A has narrower meaning than "attributable to" and the freight subsidy cannot be treated as profits 'derived' from the industrial undertaking though it may be 'attributable' to the industrial undertaking? 2.Whether the ITAT was right in law holding that 'freight subsidy' was rightly taken into consideration by the assessee in working out the profits and gains of the business undertaking relying on the decision of Calcutta High Court in the case of Merinoplly Chemicals Ltd. 209 ITR 508 where the point in issue was whether a receipt on account of 1 Whether the reporters ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... percentage specified in sub-section (5) and for such number of assessment years as is specified in sub-section (6). xxxxxxxxxx (5)The amount referred to in sub-section (1) shall be (i)(a)in the case of an industrial undertaking referred to in sub-clause (a) or sub-clause(d) of clause (iv) of subsection( 2), twenty-five per cent of the profits and gains derived from such industrial undertakings; (b)in the case of an industrial undertaking referred to in sub-clause (b) or sub clause (c) of clause (iv) of subsection (2), hundred per cent of the profits and gains derived from such industrial undertaking for the initial five assessment years and thereafter twenty-five per cent of the profits and gains derived from such industrial undertaking. xxxxxxxxxx (7)Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under sub-section (5) for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puted that the expression "attributable to" is certainly wider in import than the expression "derived from". Had the expression 'derived from" been used it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection it may be pointed out that whenever the Legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor General it has used the expression "derived from", as for instance in S. 80-J. In our view, since the expression of wider import, namely, "attributable to" has been used, the Legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity." Relying on these observations of the Apex court it is contended on behalf of the Revenue that since in Section 80-1A the word 'derived' has been used, the transport subsidy cannot be said to be derived from the business of the industrial undertakings. A Division Bench of the Calcutta High Court dealt with a similar q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to be eligible for relief under Section 80HH. After analyzing the entire case law the Madras High Court held as follows: "A study of various case laws clearly indicates that a restricted meaning is given when the Legislature uses the expression, "derived from". Though the assessee has necessarily to make the deposit with the Electricity Board for running the industry and the power supply will not be made without the deposit in favour of the Electricity Board, the income derived from the deposit with the Electricity Board cannot be said to have been derived from the industrial undertaking. The immediate source of interest is the deposit itself, and the effective source of the genealogy of the source of the interest income is the deposit and not business, as the industrial undertaking is removed by one step from the source of income for the interest. Hence, the interest income cannot be held to be derived from the industrial undertaking." The Madras High Court had placed reliance on the judgment of the Karnataka High Court in Sterling Foods vs. CIT, (1984) 150 ITR 292. The judgment of the Karnataka High Court was upheld by the Apex Court in Commissioner of Income-Tax vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore cannot be said to be treated as parts of the profits and gains derived from the industrial undertaking. The relevant portion of the judgment reads as follows: "The limited question for our consideration is whether the amount of transport subsidy is a profit for the purpose of deduction under section 80HH of the Income-tax Act. As referred to above, their Lordships in their latest decision in the case of CIT v. Sterling Foods (1999)237 ITR 579 (SC), had made a distinction between the words "derived from" and "attributable to". The words "attributable to" have wider import than the words "derived from" and when the Legislature has used the words "derive from" in Section 80HH, we cannot enlarge the scope of benefit intended by the legislature in section 80HH. Profits and gains which are derived from an industrial undertaking are only eligible for deduction under section 80HH. Any incidental income or profit to the business of the assessee or to the income of the industrial undertaking is not entitled or eligible for the benefit of section 80HH. The industrial undertaking should be the direct and immediate source of income for the purpose of deduction under section 80HH. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ural provisions. Therefore, we need to examine what these provisions prescribe for "computation of profits of the eligible business". It is evident that Section 80-IB provides for allowing of deduction in respect of profits and gains derived from the eligible business. The words "derived from" is narrower in connotation as compared to the words "attributable to". In other words, by using the expression "derived from", Parliament intended to cover sources not beyond the first degree. In the present batch of cases, the controversy which arises for determination is: whether the DEPB credit/ Duty drawback receipt comes within the first degree sources? According to the assessee(s), DEPB credit/duty drawback receipt reduces the value of purchases (cost neutralization), hence, it comes within first degree source as it increases the net profit proportionately. On the other hand, according to the Department, DEPB credit/duty drawback receipt do not come within first degree source as the said incentives flow from Incentive Schemes enacted by the Government of India or from Section 75 of the Customs Act, 1962. Hence, according to the Department, in the present cases, the first degree source i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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